12 Aug 2019
Section 1: Industrial Manufacturing Focus in Kenya
Industrial Clusters: Parks & Zones
The capital Nairobi and the port city of Mombasa are the main urban centres in Kenya, with populations of 3.3 million and 966,000, respectively. Nairobi is a multicultural city and the largest population of migrants is based there.
Export manufacturing is clustered in Export Processing Zones (EPZs). By 2017, Kenya had 71 designated EPZs with 131 companies and almost 53,000 workers. Most EPZ firms are concentrated around Athi River, Nairobi and Mombasa regions. 66 are privately owned and operated while five are public zones (Athi River & Kinanie in Machakos; Kipevu in Mombasa, Samburu in Kwale and Homabay Counties). Approximately 50% of all firms in the zones are fully owned by foreigners, mainly from India, while the rest are locally owned or joint ventures with foreigners.
The garment sector is dominant within the EPZs. It constituted 16% of enterprises, 80.3% of total local jobs, 61.2% of exports and 21.3% of private investment in 2017. The proposed Textile City, to be set up at the Athi River EPZ, is expected to attract more than 100 textile investments, but progress on the project has been slow.
Manufacturing for the domestic market will increasingly be focussed in Special Economic Zones (SEZs). The SEZ Regulations that came into effect in 2018 empower county governments to set aside public land for the establishment of industrial zones. The Second Medium Term Plan of Kenya's Vision 2030 economic development agenda calls for establishing SEZs in Mombasa, Lamu, Kisumu and eventually to additional towns throughout the country. An SEZ near Naivasha is also under consideration. It would be located near the Olkaria geothermal power plant where manufacturers would benefit from cheaper and reliable power.
Textiles are the largest manufacturing export industry, accounting for just over one third of all manufactured exports in 2018. Articles of apparel and clothing accessories account for the majority of these exports. Pharmaceuticals, chemicals, vehicles and iron and steel and plastics are all smaller, though significant export manufacturing industries.
Textiles: Textiles is the most established export-orientated manufacturing industry in Kenya and the country’s EPZs are well-designed to facilitate foreign investment into this sector. However, textile exports grew weakly over 2014-2018 and we expect market share will continue to be challenged by rising exports from Asian competitors including Bangladesh and Vietnam, as well as from regional competitor Ethiopia. The US receives around three-quarters of Kenyan textile exports, in part due to the African Growth and Opportunity Act, which provides favourable market access for Kenyan textile exporters to the US domestic market.
Autos: Kenya's comparatively strong infrastructure and close transport links to the rest of East Africa will continue to make the country a natural hub for autos production in the coming years. This will be driven by an expansion in domestic demand, investments by major original equipment manufacturers (OEMs) and improving export opportunities across the East African Community (EAC).
According to Fitch Solutions’ proprietary Autos Production Risk-Reward Index, Kenya is the second most attractive market for autos production in Sub-Saharan Africa, just behind South Africa and 46th globally out of the 56 countries covered. While Kenya’s ranking is weighed down by the small size of current production volumes, attractive tax incentives on imported parts used for assembly helps lift the country’s overall rank.
In the past two years a wide variety of automakers, including Sinotruck, Mahindra & Mahindra, Volkswagen (VW), Groupe PSA, Nissan Motor, Volvo, Iveco and Ashok Leyland, have announced plans to invest in vehicle assembly facilities in Kenya. These investments highlight how the country's auto manufacturing industry is diversifying to include more passenger car production in what has traditionally been a hub for CV production.
Pharmaceuticals: The government is aiming to boost domestic drug manufacturing to explore this potential for increasing exports. Currently, Kenya's pharmaceutical industry consists of approximately 37 manufacturers, with most located around Nairobi. Approximately 30 of 50 manufacturers in the Common Market for Eastern and Southern Africa (COMESA) are based in the country, including GlaxoSmithKline East Africa unit. The removal of trade tariffs will boost local production and the export of locally produced medicines in the future, especially as local drug makers start to profit from medicine exports to the East African Community (EAC).
In April 2019, construction started on a US$100 million drug manufacturing facility in Nairobi, Kenya. The facility is reportedly set to be the largest in Africa. The project is being carried out under a partnership between the government, local drug manufacturers and the Global Fund. The facility will manufacture drugs for treating HIV/AIDS as well as for malaria and tuberculosis. The plant, slated to be operational in the second half of 2019, is expected to produce and supply drugs to 23 African countries. This will help improve the development of skills, potentially lower drug costs (regionally) and further Kenya’s economic diversification efforts.
ICT Hardware: As part of a national ‘ICT Masterplan’, the government is encouraging development of ICT hardware manufacturing capacity. This is primarily with the aim to support the integration of ICT into local business, but will simultaneously develop export capacity. Development will be slow given delays to flagship projects such as Konza Technology City, which was launched in 2013 but has seen little progress. Production capacity is small at present, with electronics exports accounting for 1.2% of total exports in 2018. Electronics export capacity is currently concentrated in mobile phone and storage technology.